We are headed for the worst December crash for the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) since 2002 as investors panic about the prospect of a global recession in the next 12 to 18 months.
This month will be unusual for ASX investors but not in a good way as December tends to be third best month for our market with the ASX 200 recording a monthly gain in 70% of the time since 2000.
Not only has Santa bombed out this year, but the 3.4% tumble we've copped since the start of the month makes this the bleakest December in 16 years after the 6% thrashing we received in 2002!
We can blame the worst performing blue-chips for the dour performance. The Origin Energy Ltd (ASX: ORG), Wesfarmers Ltd (ASX: WES) share price and Westpac Banking Corp (ASX: WBC) share price were the weakest of the bunch in 2018, although Wesfarmers loss was skewed by the divestment of Coles Group Ltd (ASX: COL).
Is December a canary in the coal mine?
The other years when the ASX 200 posted a loss in the last month of the calendar year were 2015 when the index fell 1.8%, 2014 when it slipped 0.4%, 2007 when it lost 0.9% and 2005 when it shed 0.1% of its value.
Coming back to 2018, fear over the health of the global economy will haunt us into the new year but those worried that the Christmas crash signals something more sinister for our market next year can breathe a little easier.
I've found no correlation between December's performance and how the ASX 200 tracks the year after.
More significantly, only two times of the last five when our market made a loss in December did the ASX 200 suffer a loss the following year.
What's more, the forward-looking economic data doesn't point to a recession even though some global markets (like oil) are pricing one in.
What 2019 could bring
Given that the big investors are away for most of January, we could trade sideways ahead of the February reporting season, which I believe will set the tone of the market for 2019.
There's also a risk that some companies could issue profit warnings in January as they review the final months of 2018, although I don't think next month's confession season will be bad in general.
There are signs that retailers will do ok over the Christmas trading period and there's a lot of bad news already priced into the market.
But we live in volatile times that is exacerbated by unpredictable geo-political pressures. This means the bears could be right about the world slipping into a recession within the next 18 months.
However, all we can do is make our investment decisions based on the available data, and right now it's telling us that equity markets are too bearish.
May 2019 be kinder to us ASX bulls!
